Scalping is a quite risky but effective technique that has emerged in recent years as one of the most popular. This technique involves the same risks as any other technique to trade. Trading is also called “Rapid” or “Quick Trading”. One of the most effective trading strategies used in the Forex market, is that the trader performs a series of daily trades, in this case we speak of hundreds of daily transactions quickly. This means that a trade can take 2 minutes or even seconds can be inclusive. The scalping is within the so-called intra-day, because the trader can get to buy or sell 20 or more times in 1 hour, looking for a profit.
It is important to understand that by using this strategy for winning $ 1 million, 1 million must perform trades for you can have a clear idea. This technique is usually used by conservative’s traders or those traders who have a lot of stress in each transaction and therefore do not have good command of his emotions, because it handles a lot of tension throughout the day.
What is the purpose or goal of scalping?
The purpose of implementing this strategy at the time of trading is that the trader obtains a small gain immediate in very short periods of time. That is in minutes or seconds. Some market experts say this strategy has a high reliability, showing an 85% correct of earnings. In this case profits are very low, but so are losses.
The goal is to make hundreds of small daily transactions and profit small volume to be together or in a higher amount. It is important to remind that these transactions are continuously during the day, so you must remain seated at your computer for hours, as you will be opening positions in the market constantly.
To be successful using this technique you should bear in mind that to perform these transactions quickly, you should invest a larger amount of money or lots, so that the gains are small, but significant.
How it works?
For example: If a trader opens a transaction with 100,000 units with the following EUR / USD, he can profit by approximately $ 10.00 per pip, so if he closes the trade, he wins 3 pips, he will get a profit of $30.00, but all this happens in 1 minute or less. Now, imagine that a trader performs similar transactions several times a day or to give exact figures, he does so 30 times in the day with success, he won $ 900.00 in a day.
Another example or comparison:
150 pips x $ 2/pip = $ 300 gain (2 hrs)
5 pips x $ 60/pip = $ 300 gain (within 5 minutes of operation)
The strategy or method of scalping is generally based on 3 factors:
1. Liquidity: Liquidity in the market provides more opportunities for the trader to perform successful transactions in any period of time.
2. Volatility: Only if the market is in range, may provide opportunity to the trader on scalper, to find a suitable time to win in one transaction. A ranging market market makes more opportunities to earn money in small transactions.
3. Time: A successful trader using Forex scalping strategy does not always start trading when he starts the day. Usually the trader using the scalping should be patient to find the proper time to open a position in the market.
Among the most important advantages are:
- They are usually highly effective
- There are small losses on each transaction.
- Many opportunities for profit in one day.
- It is not likely to be bankrupt in a single transaction.
Among the most important disadvantages are:
- Reports directly to the effectiveness of the system
- Small profits on each transaction.
- High level of emotional stress and psychological pressure
- The trader must know how to perform quick trades
- Requires more time monitoring the market.
- High transaction costs (paid a lot to spread or commissions).
To use this strategy or technique, you must take the following recommendations:
- When the market is uptrending, you should make more purchases, while the market downtrends you must perform more short positions transactions.
- Remember to use several technical indicators at once, for best results.
- Get uses to using bid price to buy and Ask to sell on a continuing basis.
- Always remember to set take profit levels and stop losses.
- Be quick to take profits and generally to trade.
- You can use any system to break support or resistance levels to make purchases or sales.